As we expected the European Central Bank has maintained its current policy stance. Despite market talk over the last few weeks for some indication on tightening, we are not surprised to see the ECB remaining committed to easing for the foreseeable future.
While growth has continued strong and steady, we know the committee are inflation targeters and thus, we would not expect to see tapering any time before the end of Draghi’s term. We may also want to remember that the ECB have an institutional memory of early hikes not always working from when Trichet raised interest rates in 2008. We think Draghi’s dovish stance will thus hold, and we could see accommodative monetary policy possibly into 2019.
While we always look at fundamentals in our investment process, political volatility is still a big market theme in Europe, and many events are still on the horizon, from Brexit, the French Parliamentary elections, the German elections and an on-going reform in Italy.
These events will likely contribute to the ECB’s overall dovish stance as they will be keen to see how these events may impact the economic landscape in Europe. With that in mind, we think the bond markets in Europe will continue to be supported and yields anchored. We however, through our active approach, are finding good opportunities as a result of this on-going volatility in markets such as Italy.
David Zahn - Head of European fixed income - Franklin Templeton Fixed Income Group BLOG COMMENTS POWERED BY DISQUS